Pound-Euro Exchange Rate Charges Towards Parity

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The British Pound simply cannot catch a break against a fast appreciating Euro, with the spot Pound-to-Euro exchange rate dipping below 1.10 on Monday, March 16 amidst an ongoing coronavirus-inspired market slump.

The Pound has endured a 1.40% decline in value against the Euro today and a 0.86% decline since markets opened on Sunday night, with momentum firmly pitted against the UK currency and we see little to argue against further declines at this juncture.

The slip below the psychologically significant 1.10 marker comes amidst another market meltdown as global investors continue to liquidate exposure to stocks and high-yielding assets in anticipation of a global economic recession.

The GBP/EUR exchange rate is now back at levels last seen in August-September 2019. Recall that this was at a point of extreme political uncertainty in the UK when markets were unsure the government would be able to secure a Brexit deal with the EU by year-end.

Speculation and uncertainty over the prospect the UK's political future were also rife, following the July resignation of Prime Minister Theresa May.

The Pound has now endured six uninterrupted days of decline, with the charts showing that the daily declines are getting larger as the selloff in Sterling accelerates.

Note, that the lowest point for GBP/EUR came in the wake of the great financial crisis of 2008, confirming that the Pound suffers both when domestic political uncertainty is rife and when global markets are in meltdown.

The Pound is reliant on the steady inflow of substantial sums of foreign investor capital, drawn to the UK for exposure to the country's sizeable financial services sector, solid legal framework, beneficial timezone and business-friendly political environment.

However, when global investors run scared the Pound tends to suffer amidst a huge repatriation in capital, which creates downside pressures on the currency.

Given this dynamic, where will the GBP/EUR exchange rate end?

Judging by the declines of the 2008 episode, we would say it is not hard to imagine that the all-time low of 1.02 hit on Tuesday, December 30 2008 is feasible.

If the looming recession facing the world in 2020 proves to be deeper and more structurally damaging that the 2008 crisis, then it would not be a stretch to imagine the Pound-Euro exchange rate falls to parity, or even goes deeper.

"The brutal sell-off continued this morning as investors once again shrugged off the latest round of emergency central bank rate cuts. Equity investors are realising each passing day that the economic impact of the virus outbreak is going to be severe, after initially downplaying the risks," says Fawad Razaqzada, Senior Market Analyst at TradingCandles.com.

According to the Johns Hopkins Coronavirus Resource Center, since the outbreak of the neo coronavirus 2019, there have been 169,387 cases confirmed with 6513 deaths recorded.

Italy has the highest incidence of deaths outside of China at 1809, with 292 deaths having now been recorded in Spain. The spreading lockdown in European economies is of particular concern to markets, with France this weekend ordering the closure of restaurants, bars and theatres. In Spain the new lockdown is more severe with residents being told to stay in their homes and being threatened with fines in excess of €1000 for breaking the nationwide curfew.

There is a clearly a spike in cases outside of China and the consensus amongst the medical community is that the peak of the outbreak remains some weeks off. Only when the consensus agrees that the tide is turning on the outbreak would we consider calling a turning point for markets.

"The key word is confidence and right now confidence is very low and falling as Covid-19 spreads and kills," says Razaqzada.

The British Pound's bounce against the Euro looks to be over with the gains seen in the first half of this week rolling over and giving way to a familiar trend of weakness which could extend below 1.09 over coming weeks, according to analysis from investment bank Crédit Agricole CIB.

The Pound-to-Euro rate could garner support on Monday or even find itself receiving a bid as the economy partially exits 'lockdown,' but a full sleight of fundamental risks may trouble the British currency as the week progresses.

The Pound-to-Euro rate limped into the weekend as the British currency slipped while Europe's unified unit broke to the upside from a stifling multi-month range although things could get ugly for Sterling if EUR/USD and GBP/USD continue to diverge from each other in the days and weeks ahead.

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The news and information contained on this site is by no means investment advice. We intend to merely bring together and collate the latest views and news pertaining to the currency markets - subsequent decision making is done so independently of this website. All quoted exchange rates are indicative. We cannot guarantee 100% accuracy owing to the highly volatile and liquid nature of this market.